EU agrees changes to mortgage law

Source: Reuters - Mon 22th Apr 2013

EU countries reached a deal with the European Parliament on Monday on the bloc's first common rules on mortgage lending, in an attempt to avoid a repeat of property bubbles that helped fuel the euro zone's debt crisis.

Once written into EU law, the rules will force lenders in Europe's €6.5 trillion mortgage market to check the creditworthiness of potential customers and their ability to repay, banning self-certified or "liar" loans.

The rules will also make it illegal for those carrying out credit checks within banks and other lenders to have their pay linked to the number of mortgages they approve - a practice blamed for encouraging irresponsible lending in the past.

"The new rules agreed today will give consumers much better information about mortgage applications and offers," said Ireland's Finance Minister Michael Noonan, whose country holds the rotating, 6-month EU presidency and who led the talks.

"We have seen in Ireland how practices in relation to mortgage credit have contributed to the crisis in the financial system," he said in a statement, referring to the implosion of a bubble that dragged the country into a financial bailout.

The draft rules still need to be rubber-stamped by the full parliament and EU governments before entering force in mid-2015.

Irresponsible home lending in the United States created a domestic housing bubble that, when it burst, helped to spark the global financial crisis.

Property bubbles in Ireland and Spain left banks holding hundreds of billions of euros in bad debts, forcing governments to prop them up and then seek euro zone bailouts when the expense proved too much.

As well as seeking to avoid reckless lending, the rules also increase consumer protection by making it harder for lenders to seize homes from borrowers who fail to keep up with repayments.

Other aspects of the regulations are designed to encourage cross-border competition between mortgage providers, for example by requiring them to provide certain information in a standardized way to consumers across the bloc.

Regulators believe greater competition between lenders in different countries will result in a better deal for consumers and contribute to the bloc's economic recovery.